The monetary policy committee of the Reserve Bank of India on Friday reduced the benchmark lending rate by 25 basis points, causing the first rate to cut in five years. The purpose of this decision is to promote dull economic development supported to reduce the expectations of inflation. However, it will take about two quarters to cut the rate to be fully passed for the economy.
During the press conference after the MPC meeting, RBI Governor Sanjay Malhotra said that the rate cut will reduce the interest rates for loans connected to the outer benchmark lending rate. “Those deposits that are already deciding in advance. New deposits that are coming – this is only in relation to those who will apply these changes, ”Malhotra said.
He emphasized that the transmission of rate cuts would depend on the average tenure of the existing deposit and that the RBI would provide the support and liquidity necessary to speed up the process.
Deputy Governor Swaminathan Janakiraman provided more clarity on the transmission timeline for loans connected to the marginal cost of fund based lending rate. “Essentially, external benchmark rates are about 40% on the loan book, on which we will see more immediate effects. In relation to the book associated with MCLR, which is equal to the EPLR book, it usually takes about two quarters for the impact based on our previous experience, ”said Jankiraman.
While most MCLR adjustments occur every six months, some loans are connected to three months or a year benchmark, which can affect the transmission timeline, he said.
(Tagstotransite) Monetary Policy Committee (T) India MPC (T) RBI (Reserve Bank of India)
